The Boston Consulting Group has produced a report on the impact of the internet on the global economy which provides an insight into the extraordinary growth of internet usage and the impact of the internet economy.
It also provides some understanding of the extent to which the belated acceptance of internet retailing by Australian retailers has held back the growth of the internet economy here relative to other developed economies.
BCG says the impact of the internet is getting bigger everywhere, off an already enormous base. It expects the internet economy in the developed G20 nations to grow by eight per cent a year over the next five years, outpacing almost every other traditional economic sector.
The contribution of the internet to GDP in those economies will rise to 5.3 per cent and the internet economy in the G20 will nearly double, employing 32 million more people in 2016 than it does today.
In developing economies the growth rates will be staggering if BCG’s forecasts prove correct. It says the average annual rate of growth in the developing world will be 18 per cent.
The growth is being fuelled by the rising number of users and their faster and more ubiquitous access to the internet.
BCG estimates the size of the Australian internet economy at $44 billion, or 3.3 per cent of GDP, and says it is expected to grow at an annual rate of seven per cent to reach $67 billion, or 3.7 per cent of GDP by 2016. About half of that $67 billion will relate to consumption.
It also says, however, that the trend towards retail buying offshore – the source of fierce complaints and lobbying by physical retailers – was a major factor in measuring the size of the internet economy here. With imports deducted from the value of the internet economy, the size of the economy was diminished by one percentage point.
‘’It highlights the missed opportunity for Australian retailers,’’ the report said. It also said the actual influence of the internet on retailing was larger than the value of online purchases because consumers had spent about $44 billion offline in 2010 after researching their purchases online.
The significance of retail to the growth of the internet economy can be seen in BCG’s estimate that the sector accounts for about one third of the G20 GDP and its forecast, for instance, that online retail will represent up to 23 per cent of total UK retail sales in 2016.
It sees mobile shopping, using smartphones and other portable devices, as having a dramatic impact on retail commerce and e-commerce generally and says retail may be "ripe" for a transformation similar to that experienced by the media industry, where, in developed economies, between 15 per cent and 30 per cent of advertising spending has migrated online. It forecasts online advertising, a $US65 billion business in 2010, to grow at 12 per cent per annum in G20 economies through to 2016, to about $US125 billion.
In Australia it expects online advertising to grow from 18.4 per cent of total advertising spending in 2010 to 34 per cent in 2016, making it the largest advertising medium.
The other significant conclusion from the report is the opportunity it outlines for small and medium-sized enterprises. In 11 of the G20 countries, "high web" SMEs have experienced revenue growth that was up to 22 per cent higher than that achieved by SMEs with no or low web usage, BCG said. In the UK, sales at high-web companies increased six times as fast as those of firms with no internet presence.
In this economy the exponential take-up of smartphones and tablet devices does tend to indicate the potential for a structural shift upwards in e-commerce generally and e-retailing in particular. As the national broadband network rolls out (whichever version of it we ultimately end up with) there ought to be another surge in broadband penetration and usage.
While, in terms of its cost, the NBN is consumer-centric because so much of its cost is tied up in connecting homes to the network, the big economic opportunity, if they can seize it, lies in the potential for businesses, particularly small businesses, to extend their reach and change the very nature of their businesses.
Similarly, as Telstra, Optus and Vodafone roll out their 4G networks, there is a massive opportunity for internet-savvy businesses to target and reach a bigger market more efficiently and effectively by leveraging off the smart dimensions of the new generation of mobile devices.
BCG says that mobile devices will account for four out of five broadband connections by 2016.
The mobile internet no doubt helps explain the explosion in usage of social networks, particularly in developing economies, which already have more than 800 million users. BCG says social networks reach more than 80 per cent of consumers in developed and developing economies alike.
After a slow start Australian retailers and businesses more broadly are making an effort to develop meaningful online presences. Whether they aim to capture online sales or the offline sales shaped by online research, the kinds of growth rates BCG is describing, within the timeframe it was considering, means the laggards are likely to be punished severely.
One only has to look at what has happened to the media sector, as its revenue has shifted to the internet at an accelerating rate, to see how disruptive and destructive the internet can be to traditional business models and how difficult it is for those models to profitably compete with competitors that have been designed for the internet once the competitors are established. For the traditional retailers and other businesses with consumer interfaces they either embrace the net or become increasingly irrelevant and threatened.